AaAa affects both the present and future values of cash flows An investor can in
ID: 2264289 • Letter: A
Question
AaAa affects both the present and future values of cash flows An investor can invest money with a particular bank and earn a stated interest rate of 660, however, interest will be compounded quarterly. What are the nominal, periodic, and effective interest rates for this investment Nominal rate Periodic rate Effective annual rate 4.58% 8.65% 11.25% You want to invest $12,000 and are looking for safe investment options your bank is offering you a certificate of deposit that pays a nominal rate of 6% that is compounded quarterly, what is the effective rate of return that you will earn from this investment? 8 6.319% 6.136% 6.450% 5.995% Suppose you decide to deposit $12,000 in a savings account that pays a nominal rate of 10%, but interest is compounded daily. Based on a 365-day year, how much would you have in the account after three months? (Hint: To calculate the number of days, divide the number of months by 12 and multiply by 365.) O $12,303.91 O $12,919.1 O $12,180.87 O $13,042.14 O Type here to searchExplanation / Answer
1st question:
Nominal interest rate =6.60%compounded quaterly
Periodic interest rate = nominal rate/number of times compounded in year
=6.60/4=1.65%
EAR = effective annual interest rate , i= nominal rate on , m= number of times the interest is compounded per year.
EAR=(1+6.60%/4)^4 - 1 = (1+1.65%)^4-1 = 6.76%
2nd question:
Nominal Rate = 6%
EAR = effective annual interest rate , i= nominal rate on , m= number of times the interest is compounded per year.
EAR=(1+6%/4)^4 - 1 = (1+1.5%)^4-1 = 6.136%
3rd question:
Annual rate = 10%
Interest is compounding daily. on basis of daily compounding future value of investment is calculated below:
Future value = $12,000 × [(1 + 10% / 91) ^ 91]
=$13.042.14